ETF Trends
ETF Trends

By Dr. Yazann Romahi via

Here’s a paradox for financial advisers to consider: As it relates to traditional indexing, we would never invest in an active manager in long-only equity without benchmarking them to the relative index. But in the hedge fund world, we’ve accepted that returns are all the result of idiosyncratic manager skill.

As more and more hedge fund data has become available and academics started to analyze hedge fund returns, that long-held belief has been tested. What analysis has shown is that a significant component of hedge fund returns is in fact not manager skill, but systematic exposure to risk premia, in other words, beta.

The increased understanding of these alternative beta factors coincided with the development of other investment vehicles that can offer exposure to these factors – and the end result is that alternative beta ETFs are raising the bar on hedge funds.

Access to beta for hedge fund strategies spans four broad categories:

Equity Long/Short: Invests in top-ranked stocks while shorting bottom-ranked stocks from a universe of developed market stocks. Strategies captured include momentum, value, size and quality.

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